On deck.

• Author: Gregg, Cecil
• Position: Succession plans for incoming chief financial officers

Who'll be the next at bat when you leave the CFO slot, maybe to put on the CEO's cleats? Are you grooming your successor?

Good news: You've just been named CEO. Congratulations! Now here's the less-good news: Your former CFO position is now vacant and the finance department has no one to step up to the CFO plate. It's not an auspicious beginning to your tenure.

This scenario is becoming more and more common as companies look within for executive talent, frequently turning to the finance department to fill the firm's top position. Indeed, a recent survey of 150 executives by Rill Management Resources finds 28 percent of chief executive officers come out of the finance and accounting disciplines, making it imperative that a batting order be in place if the CFO advances.

The findings of a joint Financial Executives Institute/RHI Management Resources survey conducted in March show financial executives have taken this situation to heart, developing succession plans for their posts and often actively mentoring employees to fill their shoes as they retire or move up the corporate ladder. Of the financial executives polled, two-thirds are grooming their successor, with CFOs of public companies more likely than those in privately held firms to engage in succession planning efforts (74 percent versus 60 percent). The largest companies - those with annual revenues exceeding $5 billion - overwhelmingly say they're grooming a successor, as indicated by 93 percent of respondents.

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It's no surprise that well-run companies have the best succession plans. Succession planning lays the groundwork for a transition whenever it occurs, whether it's expected or the result of a crisis. A succession plan also allows a company to retain people by making it clear what career paths are available and by encouraging loyalty.

Today's growth economy has businesses moving rapidly to keep up with expansion efforts and maintain a competitive edge. In this environment, leadership skills are critical. Under a strong manager, employees can reach their full potential, helping the company achieve its goals. In the FEI/RHI study, respondents most often cite leadership, interpersonal or people skills, and communication skills as the strengths they prefer in potential successors. Respondents also say they value strategic thinking, commitment to the company and the initiative to execute change.

The obvious starting point in a financial executive's search for a successor is among the company's ranks. And choosing someone from within offers substantial benefits. Those already employed by the firm know its history, key management personnel, corporate culture, the industry and how each of these functions serves as a component of the company's success. Such insight can mean a shorter learning curve in the new position.

Trust is also an issue, particularly at the CFO level, because of the sensitive, highly confidential nature of the information this person manages. An internal succession candidate, presumably, has proven his or her sound business judgment.

Where in the corporation do respondents say they look for a successor? CFOs draw most (77 percent) of their candidates from the controller level, while only 13 percent turn to the treasury function.

Private-company CFOs favor controllership over treasury far more than executives in public firms (86 percent versus 69 percent). In fact, an overwhelming 91 percent of firms with revenues of $500 million to $999 million are likely to look for a protege at the controller level, while businesses with revenues of more than $5 billion consider those in treasury roles, according to 38 percent of respondents at firms in this category.

Demand for CFO candidates with controllership experience isn't surprising given the expanded role of today's controllers. Their diverse experience is likely to include exposure to the overall corporate budgeting and planning processes as well as projects ranging from financial systems conversions to new business initiatives - functions traditionally associated with the CFO position. This broad experience provides the groundwork for the big-picture perspective...